Overhaul to enterprise zones OKd

SACRAMENTO — Handing Gov. Jerry Brown a major legislative victory, the Assembly narrowly passed controversial legislation to overhaul California's enterprise zones, which hand out $750 million a year in tax breaks to businesses.

Brown's proposal, the centerpiece of his economic development strategy, all but eliminates the power of the state's 40 locally controlled enterprise zones and replaces the program with a broader, statewide series of business incentives.

Lawmakers on Thursday sent the controversial bill, AB 93, to the governor's desk by a 54-16 bipartisan vote. Fifty Democrats voted aye, joined by four Republicans. A two-thirds vote was required on the tax measure. The bill cleared the Senate on Tuesday.

"This is a big, bipartisan win for California businesses and working people," Brown said. "AB 93 will help grow our economy and create good manufacturing jobs."

For The Record Los Angeles Times Tuesday, July 02, 2013 Home Edition Main News Part A Page 4 News Desk 1 inches; 51 words Type of Material: Correction Enterprise zones: An article in the June 28 Business section about the Assembly's passage of legislation to overhaul California's enterprise zones said Assemblyman Steve Fox (D-Palmdale) cited a study concluding that the zones had no effect on job creation. It was Assemblyman Kevin Mullin (D-South San Francisco) who cited the study.

The new law would redirect existing economic development funds, spending $400 million on a sales tax credit to boost manufacturing and biotech research and development, $200 million on updated enterprise zones that provide incentives for hiring the poor and unemployed, and as much as $100 million to reward specific businesses that relocate to California.

One of the Republican backers, Assemblyman Jeff Gorell of Camarillo, said Brown won his vote by agreeing to authorize the sales tax credit for eight years before it needs to be renewed.

Supporters of the bill, led by labor unions, Silicon Valley high-tech companies and pharmaceutical makers, were ecstatic after lobbying for at least the last two months.

"By flipping the broken enterprise zone program into Gov. Brown's smart, strategic plan for job growth, the Legislature strengthened California's economic recovery," said a statement released just after the afternoon vote by the California Labor Federation. "We applaud the Legislature for rooting out the waste and abuse in California's enterprise zone program and shifting those tax dollars to create good jobs that boost local economies."

Defenders of the 27-year-old tax break, a coalition led by the California Assn. of Enterprise Zones, lamented the loss of an incentive they said had created 25,000 jobs and saved an additional 115,000 in 2012.

"AB 93 effectively destroys the state's only remaining tool for local governments to help stimulate economic growth and attract and retain jobs and replaces it with a half-baked plan full of empty promises," the association said in a statement.

But many speakers in the Assembly debate questioned those assertions and criticized the program.

Enterprise zones, they said, strayed from their original purpose of encouraging employers to hire the poor, chronically unemployed and ex-convicts in economically depressed urban and rural areas. Instead, it turned into a giveaway mainly to large corporations for jobs that would have been available without the tax breaks, they said. They also pointed out that some of the state credits in recent years went to a pair of strip clubs and a card room casino in Sacramento.

What's more, enterprise zones have been cloaked in secrecy because of tax confidentiality laws, critics charged.

"The system is broken and needs to be fixed," said Assemblyman Mike Gatto (D-Los Angeles). "It's a state-managed form of crony capitalism that should offend a sense of free market capitalism."

Assemblyman Steve Fox (D-Palmdale) noted that a 2009 study by the Public Policy Institute of California concluded that enterprise zones have no effect on job creation.

Some Republicans stressed that they liked big parts of the governor's proposal, particularly the sales tax credit for the purchase of manufacturing equipment and for biotech research and development.

But they complained that the credit would have to be renewed after 61/2 years and urged that the so-called sunset period be lengthened to 10 years.

Assemblyman Tim Donnelly (R-Twin Peaks) also wondered about the fairness of changing the rules for businesses that made investments that qualified them for benefits under the current enterprise zone system.